The outlook for the Indian chemicals industry is positive, but there are liquidity and solvency issues with businesses in the trade and wholesale segment.

The outlook for the Indian chemicals industry remains positive, as key end-user industry growth (e.g. construction, automotive, packaging, and electronics) is expected to drive demand, and investments by foreign chemicals businesses are increasing as procedures and rules have been simplified. At the same time, exports are increasing due to rising international competitiveness of Indian chemicals businesses.

The government has announced a number of measures to improve competitiveness in the sector. 'Make in India' is expected to play a pivotal role in driving some of the key initiatives to stimulate industry growth. Government support for research and development is high.

In India, per capita consumption of chemicals products is still far below the world average, pointing to the vast potential for growth in the industry, given rising income levels and increasing urbanisation. Speciality chemicals and pharmaceuticals segments are expected to be key growth segments.

However, the government still has to improve business conditions and infrastructure in order to attract global and Indian firms to invest even more in chemicals manufacturing facilities in India. Shortage of skilled workers and technology gaps remain issues. For domestic players, cheaper imports and currency volatility remain risk factors.

The average payment duration in the Indian chemicals industry is 90-120 days. The number of payment delays and insolvency cases was stable in 2015, and is not expected to increase in 2016. However, we observe some liquidity and solvency issues with businesses in the chemicals trade and wholesale segments. Therefore, our underwriting stance is more cautious in this segment than for chemicals manufacturers.